BANGLADESH TO BUY BOEINGS

C O N F I D E N T I A L SECTION 01 OF 02 DHAKA 000407 SIPDIS SIPDIS DEPT FOR SCA/PB AND EEB/TRA E.O. 12958: DECL: 03/28/2018 TAGS: EAIR ETRD BEXP BG SUBJECT: BANGLADESH TO BUY BOEINGS REF: DHAKA 48 DHAKA 00000407 001.2 OF 002 Classified By: Geeta Pasi, CDA, a.i. for reasons 1.4 (b) and (d) ¶1. (U) SUMMARY: Biman Bangladesh Airlines March 15 signed a Memorandum of Understanding (MOU) with Boeing to purchase eight wide-body aircraft, representing a total value of $1.26 billion. The purchase involves four 777 aircraft to be delivered in 2013 and four 787 aircraft for delivery in 2017, with arrangements for aircraft leases in the interim period. It was also announced that Bangladesh will soon ratify the Cape Town Convention to facilitate financing of the sale. This brings to fruition a decade-long campaign by the aircraft manufacturer to sign an agreement in Bangladesh and follows recent advocacy efforts on behalf of Boeing by Embassy Dhaka and the Department of Commerce. Additional proposals for short- and medium-range aircraft are also being negotiated. Boeing officials cautioned that the real work is now just beginning and that Boeing will continue to seek USG advocacy assistance until the sale is concluded. Boeing is also in discussions with the country's second largest carrier, GMG Airlines, to sell wide-body aircraft, as that airline seeks to expand its network beyond the region. END SUMMARY. ¶2. (U) After a decade of efforts by Boeing to conclude a deal with Biman, the national air carrier, the two parties signed a Memorandum of Understanding March 15, in the presence of CDA and Embassy officials, for the purchase by Biman of eight wide-body jets. The four Boeing 777-300ERs and four Boeing 787-8s, are to be delivered in 2013 and 2017, respectively, with a lease of four aircraft to cover the interim period starting in 2009. A Definitive Agreement is expected to be signed in April. According to the Chairman of the airline's board of directors, the purchase will be financed primarily by the ExIm bank, pending Bangladesh's expected ratification of the Cape Town Convention, which establishes a legal framework to protect security and leasing interests in aircraft equipment. ¶3. (U) The sale is being touted as Biman's first aircraft purchase decision made without political interference, reflecting optimism that the moribund airline may be turning a corner as it moves away from state control. Biman became a public limited company in July 2007 (reftel). Its board of directors, initially dominated by government figures, was reconstituted in February and now includes only three civilian government officials among its ten members. It also includes one representative each from the Army and Air Force, while the remaining five include Biman's CEO, two chamber of commerce presidents, the editor of a travel industry newspaper and the Director of Dhaka University's Institute of Business Administration. The Chairman of the Board is Mr. Mahbub Jamil, the recently-appointed Special Assistant to the Chief Adviser for Civil Aviation and Tourism and a respected former businessman. ¶4. (U) During the last few months, Boeing has been working with Post and the Department of Commerce in advocating for both the sale and for Bangladesh's ratification of the Cape Town Convention. Under Secretary of Commerce for International Trade Christopher Padilla communicated with Chief Adviser Fakhruddin Ahmed and Charge d'Affaires, a.i. Geeta Pasi has remained engaged on the subject with Mr. Jamil and other high officials. ¶5. (C) The MOU includes language requiring the two parties to engage directly with each other, prohibiting the use of middlemen. Jamil confided to CDA that the MOU signing, originally slated for January, had been delayed in part because some participants in the decision-making process were considering ways to work the deal to their own advantage or to that of business associates. Boeing officials echoed these concerns, warning of "wannabe consultants coming out of the woodwork." ¶6. (C) Miguel Santos, director of Boeing's regional sales team, cautioned that the hard work is just beginning and that Boeing will continue to request USG advocacy assistance. Describing the deal as one that "most thought would never happen - and some still don't" he warned of potential obstacles ahead, in particular challenges from Airbus. Biman officials expressed concerns to Santos about possible restrictions imposed on landing at European airports by the European Union as a result of Biman's choosing Boeing over DHAKA 00000407 002 OF 002 Airbus, citing several other cases where EU restrictions were 'coincidentally' imposed on airlines following agreements with Boeing. Because of these concerns, Boeing may prefer to keep a low profile at various points in the process. Post will remain sensitive to these wishes and consult with Boeing on any questions concerning publicity, while continuing to engage the GoB in advocacy communications. ¶6. (U) The 777s and 787s will address Biman's needs for fleet replacement on long-haul and high-volume routes, but the aircraft currently used for domestic and regional services will also need to be replaced. To address these needs, the airline has requested a proposal from Boeing for next-generation 737s and is also expected to review a proposal for A320 aircraft from Airbus. ¶7. (U) Amid the fanfare of Biman's agreement with Boeing, Bangladesh's second largest carrier, GMG Airlines, has been working quietly at its own expansion plans, also in collaboration with Boeing. In a deal engineered by Santos, GMG recently wet leased a Boeing 747 jumbo jet from Iceland-based Air Atlanta, thereby doubling GMG's passenger seat capacity. Since February 1 GMG has been using the 747 for daily services, at a healthy passenger load factor, from Dhaka to Dubai. A second lease of a 747 is expected in the next few months, and it was recently announced that GMG expects to sign a purchase agreement later this year for three Boeing 777s and three 787s, valued at $900 million, making GMG's purchase almost as big as Biman's. GMG has ambitious plans to expand its route network in the Middle East and India, and to introduce services to the U.K. in the next few years. ¶8. (U) The impact of these sales on bilateral trade, when and if they are completed, will be immense. The value of two 777s is roughly equal to current total annual U.S. exports to Bangladesh, which was just under $400 million in 2007. Pasi